The following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following table, fill in the column labeled Value of Money. Quantity of Money Demanded Price Level (P) Value of Money (1/P) 1.00 1.00 (Billions of dollars) 2.0 1.33 0.75 2.00 0.50 4.00 0.25 2.5 4.0 8.0 ما Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the less required to complete transactions, and the more money people will want to hold in the form of currency or demand deposits. money VALUE OF MONEY 1.25 1.00 0.75 26 0.50 0.25 0 0 1 2 3 4 5 6 7 8 QUANTITY OF MONEY (Billions of dollars) MS Money Demand MS, ? According to your graph, the equilibrium value of money is, therefore the equilibrium price level is Now, suppose that the Fed increases the money supply from the initial level of $2.5 billion to $4 billion. In order to increase the money supply, the Fed can use open market operations to Use the purple line (diamond symbol) to plot the new money supply (MS2). the public. Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is quantity of money demanded at the initial equilibrium. This expansion in the money supply will than the people's demand for goods and services. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will the value of money will and
The following table gives the quantity of money demanded at various price levels (P), the money demand schedule. In the following table, fill in the column labeled Value of Money. Quantity of Money Demanded Price Level (P) Value of Money (1/P) 1.00 1.00 (Billions of dollars) 2.0 1.33 0.75 2.00 0.50 4.00 0.25 2.5 4.0 8.0 ما Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the less required to complete transactions, and the more money people will want to hold in the form of currency or demand deposits. money VALUE OF MONEY 1.25 1.00 0.75 26 0.50 0.25 0 0 1 2 3 4 5 6 7 8 QUANTITY OF MONEY (Billions of dollars) MS Money Demand MS, ? According to your graph, the equilibrium value of money is, therefore the equilibrium price level is Now, suppose that the Fed increases the money supply from the initial level of $2.5 billion to $4 billion. In order to increase the money supply, the Fed can use open market operations to Use the purple line (diamond symbol) to plot the new money supply (MS2). the public. Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is quantity of money demanded at the initial equilibrium. This expansion in the money supply will than the people's demand for goods and services. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will the value of money will and
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The following table gives the quantity of money demanded at various price levels (P), the money demand schedule.
In the following table, fill in the column labeled Value of Money.
Quantity of Money Demanded
Price Level (P)
Value of Money (1/P)
1.00
1.00
(Billions of dollars)
2.0
1.33
0.75
2.00
0.50
4.00
0.25
2.5
4.0
8.0
ما
Now consider the relationship between the quantity of money that people demand and the price level. The lower the price level, the less
required to complete transactions, and the more money people will want to hold in the form of currency or demand deposits.
money
Transcribed Image Text:VALUE OF MONEY
1.25
1.00
0.75
26
0.50
0.25
0
0
1
2
3
4
5
6
7
8
QUANTITY OF MONEY (Billions of dollars)
MS
Money Demand
MS,
?
According to your graph, the equilibrium value of money is, therefore the equilibrium price level is
Now, suppose that the Fed increases the money supply from the initial level of $2.5 billion to $4 billion.
In order to increase the money supply, the Fed can use open market operations to
Use the purple line (diamond symbol) to plot the new money supply (MS2).
the public.
Immediately after the Fed changes the money supply from its initial equilibrium level, the quantity of money supplied is
quantity of money demanded at the initial equilibrium. This expansion in the money supply will
than the
people's demand for goods and
services. In the long run, since the economy's ability to produce goods and services has not changed, the prices of goods and services will
the value of money will
and
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